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Strings, Ribbons and Threads, Oh My

Life is full of choices. Full of opportunity. Teeming with paths, directions and possibilities. It’s also full of decisions. Each day, from the time we wake until we go to bed, we’re confronted by choices. Choosing wisely or poorly, especially on choices with more gravity, is often the difference between success and failure.

So it was as I began to have discussions about how best to achieve our mission; a discussion that threw me into a new world of charitable giving. I learned that there are many different options available from informal structures like giving circles to formal structures like donor advised funds, community charities, and private foundations which include non-operating, operating, and public.

  • A public nonprofit charity derives a majority of their income mainly from public contributions and are typically focused on a small number of causes.

  • A donor advised fund is like a charitable investment account, used for the sole purpose of supporting charitable organizations that the fund owner(s) cares about.

  • A non-operating private foundation a non-profit organization or charitable trust that principally distribute grants but may also manage its own programs. The most common are family or corporate foundations.

  • An operating private foundation is similar to a non-operating but typically has a singular focus for its charitable giving, such as a library or museum.

  • Community foundations is a public charity that typically focuses on supporting a geographical area, primarily by facilitating and pooling donations used to address local community needs and support local nonprofits.

  • Giving Circles are informal, where groups of people pledge to give a set annual donation, and then work together to choose the recipients of their pooled money.

There are pros and cons to the different structures and deciding which would be best was a challenge. The decision came down to two formal structures: a donor advised fund or a private non-operating foundation. The donor advised fund was attractive because it was simple to set up at low to no costs; it has less regulations; a more favorable tax treatment; allowed for others to contribute; and could have a management structure. The downside is that there is less control on how the money is used once it is distributed to a nonprofit (501c3) charity; that is, once the charity receives the contribution, the charity decides where to direct the money and how it will be used. Because a donor advised fund is not a 501c3 nonprofit organization, it also cannot establish it's own programs; cannot distribute its own grants; and cannot be generational (i.e. the inheritance of the fund cannot be prescribed indefinitely).

We ultimately decided that a non-operating private foundation would be the best structure for us to begin with; although it is more expensive to set up and maintain, has a more complex structure, and more stringent regulations, it also offered us the most flexibility to determine our own destiny and posterity.

(to be continued)

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